Currency markets update 26th April 2006

Sterling Falls Against Majors

Sterling hit a fresh two-week low against the euro and also lost ground against the dollar on Wednesday after UK growth data which came in line with expectations prompted some position adjustment.

Britain's economy grew 0.6 percent in the first quarter of 2006 with the annual rate of 2.2 percent, exactly in line with analysts' forecasts.

Service sector growth slowed to 0.6 percent, after growing 1 percent in the last three months of 2005, due to weaker retail and car sales.

"The data was bang in line with expectations," said Ian Stannard, currency strategist at BNP Paribas. "We are seeing cable coming under pressure in a corrective pullback after the gains we have seen in the past couple of weeks."

By 0845 GMT the pound fell to the day's low of $1.7806, down 0.3 percent on the day, off Tuesday's seven-month high of $1.7943.

Elsewhere, ECB executive board member Lorenzo Bini Smaghi said that if the European economic recovery strengthened, the central bank would adjust rates to avoid inflation, in comments published in an Italian newspaper.

Meanwhile, ECB governing council member Axel Weber told Bloomberg television that risks of second-round inflation effects had risen.

Most analysts expect the ECB to wait until June before raising rates from 2.5 percent after ECB President Jean-Claude Trichet earlier this month doused widespread expectations for a move as soon as the May 4 meeting. Even so these comments will serve to put further pressure on Sterling in the coming months.

Interbank rates
GBP/EURO